As readers of this blog know all too well, the Senate Finance Committee is taking a very serious look at imposing its own version of Sarbanes-Oxley reforms on the non-profit community. The knee-jerk reaction even in many non-profit boardrooms has been to embrace the spirit of Sarbanes-Oxley, with a focus on adopting specific Sarbanes-Oxley reforms as best practices. We certainly don't disagree with any attempts to improve non-profit governance, but legislative and board initiatives should be well-thought out.
Let's consider a case in point. Many governance experts have argued for certification of financial statements by the executive director and the CFO. Sounds good in theory, but it is not at all clear that these certifications accomplish anything. Consider American International Group, one of the largest insurance companies in the world and considered by many to be one of the bluest of the blue chips. For the last couple of weeks, the Wall Street Journal has carried often daily articles that describe apparent governance...
| Our Guide, Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer, contains a detailed analysis of which Sarbanes-Oxley reforms make sense for non-profits. The analysis uses case studies to point out that one size does not fit all. You should buy a copy of our Guide today. It is not only informative, but it is very topical. Call us at 773-325-2124 for additional information, or visit our website at http://www.charitygovernance.com. We also do on site training. |
failures on a massive scale. The legendary Chairman of the Board and CEO, Maurice Greenberg, was forced out of his imperial, nearly four-decade-long reign within the last couple of weeks. The disclosures that have surfaced about his "imperial presidency" have been anything but flattering. While many had hoped that Mr. Greenberg would retire with his reputation intact, that no longer appears to be a possibility.
During the course of recent events, AIG has issued a press release disclosing somewhere around $1.77 billion (that's billion, not million) in accounting misstatements and apparent manipulations. As of today, Mr. Greenberg has not been accused of any criminal wrongdoing with respect to the accounting issues. He is, however, to provide testimony in a deposition scheduled for tomorrow. The Wall Street Journal is now reporting that he will likely be taking the Fifth Amendment. That's his right and we can't infer any guilt if he exercises his right. At the same time, everyone should expect a CEO to be in a position to be able to openly talk about his company's accounting without fear of incriminating himself. The Wall Street Journal has also reported that AIG fired Howard I. Smith, AIG's CFO for failing to cooperate with investigators. See, M. Langley and T. Francis, AIG's Former Chief Greenberg Likely to Invoke Fifth Amendment As Deposition Delay Is Denied (April 11, 2005).
So does a piece of paper make a difference? Apparently not much of one. In 2004, both Mr. Greenberg and Mr. Smith signed the Sarbanes-Oxley certification accompanying AIG's Form 10-K Filing--Exhibit 31. Click here to view a copy that we obtained through the EDGAR filing system. Yet, the financial statements had $1.77 billion of misstatements that have been acknowledged by the company (we reconfirmed this today with a phone call to AIG).
Senator Grassley should think long and hard before imposing expensive
regulatory requirements on non-profits that are far less equipped to
deal with the resulting compliance burdens. Are reforms just window dressing, or is there statistical evidence that they would make a difference? Unless there is clear evidence supporting the effectiveness of a proposal, it should be rejected. If you liked this post, please visit http://www.charitygovernance.com
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FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL
ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD
SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.
